Consumer prices unchanged in November

Yet U.S. core CPI rate rises to highest 12-month pace since 2008

WASHINGTON (MarketWatch) — The prices paid by consumers for a broad range of goods and services were unchanged in November, mainly because of declining energy costs, government data showed Friday.

The Labor Department said the consumer price index was flat last month on a seasonally adjusted basis, matching the forecast of economists surveyed by MarketWatch. See our consensus forecasts.

After spiking earlier in 2011, overall inflation has begun to moderate in conjunction with declining prices of key commodities such as oil that play a significant role in the cost of consumer goods and services. While consumer prices are still 3.4% higher compared to 12 months ago, that’s down from a recent annualized high rate of 3.9% seen in June. Read the full report on the Bureau of Labor Statistics’ website.

Since peaking in September, inflation has moderated to a 0.8% annual rate.

“The pace of inflation has clearly moderated in recent months, and is expected to continue to ease in the months ahead,” said Jim Baird, chief investment strategist at Plante Moran Financial Advisors.

The so-called core rate of inflation, however, rose 0.2% in November to mark the biggest increase since August. Economists had expected a rise of 0.1% on the month.

Over the past 12 months core prices have risen 2.2%, the largest year-over-year increase since 2008.

Economists say the buildup in the core rate reflects price increases at the wholesale level and below earlier in the year that are now winding their way through the economy. Core prices could taper off in the near future, however, if commodity prices remain flat or fall even further.

The core rate strips out volatile food and energy inputs and is viewed by the Federal Reserve as a better indicator of long-term inflationary trends.

Some economists say softer inflation could give the Fed the necessary leeway to buy more debt — a controversial tactic known as quantitative easing — as a means to lower interest rates and spur faster growth.

Yet lower inflation, combined with a slew of reports showing the economy gaining some momentum, could also allow the U.S. central bank to stand pat. Some critics argue that the Fed’s previous debt-buying policies contributed to higher inflation.

The moderation in consumer prices appears to be one of several major factors contributing to an improved U.S. economy since an early-summer lull.

Lower inflation means Americans can buy more with the same amount of money, thereby improving living standards. And since consumer spending accounts for as much as 70% of U.S. growth, the economy could grow faster and adds jobs more rapidly.

That wasn’t the case earlier in the year, and inflation will have to ease further to reduce the financial strain millions have been experiencing. Higher consumer prices have easily outstripped inflation-adjusted wage increases over the past 12 months, so Americans have had to make do with less.

In November, for example, average hourly wages fell 0.1% to $10.22, adjusted for inflation. Real wages have fallen 1.5% since November 2010.

The spike in inflation since the fall of 2010 was largely driven by higher energy prices, but those costs continue to come down. Last month, the energy index fell 1.6%, following on a 2.0% drop in October, as lower gasoline prices accounted for most of the decline.

The price of energy, however, is still 12.4% higher compared to one year ago.

The government’s “food at home” index, which excludes takeout orders and restaurant purchases, fell last month for the first time since June 2010. The index is still up 5.9% over the past 12 months, however.

More worrisome, the cost of shelter, medical care and clothing continued their steady march higher. Shelter costs are up 1.8% over the past 12 months, while medical costs have risen 3.4%.

The clothing index, for its part, has jumped 4.8% in the past 12 months to its highest year-over-year level since 1991.

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